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The ultimate guide for first-time homebuyers

The ultimate guide for first-time homebuyers

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The ultimate guide for first-time homebuyers

Buying your first home is a huge step in every adult’s life, but the process isn’t always easy. The excitement of finally being able to make such an important purchase can cloud your thinking and result in you making some decisions that are not 100 per cent based on logical thinking. To avoid making the common mistakes first-timers make, such as buying more than you can afford or miscalculating renovation costs, here are some things you should keep in mind.

Make sure you are debt-free first

Owning a home implies many other costs besides the initial buying price and renovation costs. You may be happy to see that the monthly mortgage payment is lower than your rent was, but keep in mind that when you own, you are responsible for all maintenance costs. This is why you should make sure you start this new chapter in your life debt-free.

Pay off all debt you have and, if possible, try to build an emergency fund. You will feel much more at ease when you have to deal with unplanned expenses if you don’t have other payments to worry about and have a generous emergency fund that you can dig in. Make peace with the fact that you may have to decorate one room at a time and sleep on a mattress for the first few weeks. This will make up for some good stories in the future.

Know your limits

Before even starting to look for a home, set up your budget. Many first-time buyers can’t afford to make the purchase without a mortgage, so you need to determine how much you can pay for it monthly. To keep it safe, your house payment should not account for more than 25 per cent of your monthly income. If you want to take out a bigger loan, you should consider making a bigger down payment.

“Typically, it is advised to make a 20 per cent down payment, to avoid having to pay for private mortgage insurance,” say real-estate experts at Chestnut Park Realtors. “If you can afford it, make a bigger down payment. This will help you in the future, as you will have to pay less each month.”

At the same time, try to go for a 15-year mortgage, instead of a 30-year one. Even though you will end up with a higher monthly payment, you will be in debt for only 15 years and you will be paying far less interest.

Narrow your search

There is no point in scouting the whole city for a house, only to end up living on the other side of town and spending more time and money every month commuting to work. Try to narrow down your search to two or three neighborhoods that provide the most benefits. Because, even though the house seems to be the right one, the neighborhood may end up being the worst.

Nearby schools are among the first things you should be looking for, even if you don’t already have kids, as they can affect home value. Then, make sure the neighborhood has all the amenities you might be needing, such as grocery stores, a pharmacy and maybe even a hospital, at a close range.

Once you’ve narrowed your search down to a few neighborhoods, you can start scouting for houses that better suit your budget and needs. One piece of advice that many realtors give is to purchase the most affordable house in the best neighborhood you can. This way, you can add value to your home in time and end up selling it for more in the future.

Buy a home that fits your lifestyle

When buying your first home, keep in mind that you will be living there for at least 10 years, so think long term. Even though your needs may be pretty basic now, in 10 years a lot can change. You may end up having a family and kids, if you don’t already, so make sure you have enough room in the house for those changes.

How many bedrooms will you be needing? Will you have kids? Will you have people coming to visit and spend the night? Do you want a pool? Do you need room for a home office? These are all questions that you need to answer yourself before deciding on the house.

Attend open houses and think about renovations that you can do to increase the value of the house, but at the same time make sure it fits the needs of your family and gives you enough space to grow. The best way to do so is to make a list of absolute must-haves, such as bedroom and bathroom number, outdoor space and number of floors.

Do a home inspection

Congratulations, you have found your dream home! Now, before signing on the dotted line, make sure to do a home inspection. This will tell you if the house has any issues that may not be obvious to the untrained eye.

An inspector will check everything from pipes to walls, basement, insect or rodent issues, and many others. This way, when you negotiate the contract, you can present the seller with the issues you have found and maybe even get a price reduction in case they really bring down the house value.

Be careful when you sign the contract, especially when it comes to contingencies. You need to be able to back out of the sale after inspection, if there are issues that can’t be fixed, or in case something happens with financing.

After inspection, be realistic about the issues that are worth fixing or not. If, for example, you encounter mold issues or a degraded foundation, it may end up costing you more than it is actually worth paying, so if you don’t get a generous discount to cover repairs, don’t even bother thinking about it.


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Homebuyers undeterred by changes in mortgage landscape

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Homebuyers undeterred by changes in mortgage landscape

Mortgage web

Though 2018 was not the best year for the mortgage landscape, Canadians remain hopeful about buying a home.

A new survey from mortgage rate comparison site Ratehub.ca survey found that, despite recent regulatory changes and interest rate hikes,71 per cent of current non-owners plan to buy a home in the future. And 59 per cent of prospective first-time homebuyers plan to purchase a home within the next two years.

This year saw a number of changes that affected the costs of ownership. In January, the mortgage stress test came into effect, which lowered affordability for Canadians with conventional mortgages by around 20 per cent, Ratehub.ca says. In addition, through 2018, the Bank of Canada announced three 25-basis-point interest rate hikes. (These increases are almost always immediately followed by mortgage rate hikes at Canada’s major banks.) Meanwhile, home prices in large cities continued to edge upwards.

Young Canadians most optimistic

Ratehub.ca, however, says younger Canadians remain the most optimistic about the prospect of homeownership, with Millennial and Generation Z Canadians leading the charge in homebuying intent. According to the survey, homeownership is a goal for:

  • 87 per cent of Generation Zers
  • 81 per cent of Millennials
  • 64 per cent of Generation Xers
  • 54 per cent of Baby Boomers

Canadians’ high intent to purchase is tempered by several possible homeownership hurdles. When first-time buyers were asked about their primary barrier to entering the housing market:

  • 44 per cent cited insufficient down payment funds
  • 17 per cent cited housing market uncertainty
  • 12 per cent said their household income was too low to enter the housing market
  • 9 per cent preferred to maintain housing flexibility
  • 6 per cent said their credit score was too low to qualify for a mortgage

Many Canadians also expect home prices and mortgage rates to continue their upward trend in 2019. Among Canadians who plan on entering the housing market in 2019, 68 per cent believe mortgage rates will increase next year, while 58 per cent believe home prices will rise.

Better understanding needed

An eagerness to enter the housing market, however, hasn’t resulted in a better understanding of mortgage regulations amongst first-time homebuyers, Ratehub.ca says. Forty-seven per centof prospective first-time homebuyers are unaware of mortgage qualification rules that came into effect in 2018.

“The biggest hurdle for first-time homebuyers is saving up for a down payment,” says James Laird, co-founder of Ratehub Inc. and president of CanWise Financial. “While first-time buyers can take advantage of programs like the RRSP Home Buyers’ Plan which are tailored for their needs, buyers can also benefit from building a realistic savings plan to hit their goals.”


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